Eftpos Australia chief executive Stephen Benton is warning that competition in the payments industry will be damaged without stronger regulatory support for least cost routing.
In a consultation paper released last month the RBA indicated it would not stand in the way of most Australian banks issuing single network debit cards even though such cards thwart the ability of retailers to route contactless debit transactions to the cheapest processing platform.
Banks such as HSBC and Macquarie are issuing debit cards latched to global payments schemes (Visa and Mastercard) that prevent merchants from directing contactless payments to Eftpos.
“I think the RBA has recognised the importance of merchant choice routing – that’s really clear,” said Benton.
“But I also think they haven’t gone as far as needed in the consultation paper to make sure the service is accessible to all merchants.
“Small business groups have been telling us that retailers are finding it difficult to access least cost routing with some banks so they can realise cost savings for accepting contactless transactions.
“The rollout of more single network cards will put the benefits of LCR even further beyond their reach.”
Despite some tough rhetoric in June last year from deputy governor Michele Bullock, the findings of the recently published consultation paper indicate that there has been a softening of the priority given by the RBA to lowering costs incurred by merchants and cardholders.
In a speech to a Morgan Stanley conference held 12 months ago, Bullock stressed the importance of dual network cards for empowering merchants to choose the cheapest debit processing network.
“In Australia, for many merchants, this is the Eftpos network,” she told the conference.
In the same speech Bullock also warned Australian banks against issuing single network cards that would check the ability of merchants to route transactions to their preferred payments processor.
“…If banks or other stakeholders are acting in ways that prevent downward pressure on merchant fees, we may need to consider regulatory options for keeping the cost of electronic payments low,” she said.
However, according to the consultation paper, the RBA is now proposing to open the door to greater issuance of single network cards, arguing that they are cheaper for medium and small banks to issue.
Nor is the RBA proposing to mandate that the major banks retain dual network functionality on their debit cards although it qualifies that decision by saying it has set an “explicit expectation” that they will.
Soon after the consultation paper was published payments experts questioned this approach to regulating single network cards, with most saying it would mark a departure from the agnostic policy framework that card issuers were accustomed to operating within.
“Consistency of regulatory policy is very important for competition in the payments market,” said Grant Halverson, principal of McLean Roche.
“The regulator needs to regulate and not select winners and losers in the payments industry as they appear to be doing in single network card issuance or with the favourable treatment of buy now pay later providers.”
Sydney payments consultant Bradford Kelly believes the RBA’s decision not to mandate dual network functionality for physical and virtual debit cards presents an immediate existential threat to Eftpos.
“The RBA is effectively handing the keys to the future of payments in Australia to Visa and Mastercard,” he said.
“The findings of the consultation paper don’t take into account the looming impact of tokenisation as debit cards are virtualized.”
Benton indicated he was concerned that some of the RBA’s proposals would have the effect of denying the benefits of competition to end users of the payments system – merchants and consumers.
“This is a critical moment in the development of Eftpos and the Australian payments sector,” he said.
“It’s going to be hard to turn the clock back on decisions that are made today.
“Because the payments market is changing rapidly there is an urgent need for a principles-based approach to competition.
“I think the principles are clear but not evenly applied.”
Benton also highlighted service fragmentation as an unintended consequence of allowing more single network debit cards to be issued in Australia.
Issuers such as Macquarie have begun to warn customers that they will not be able to withdraw cash at supermarkets and other retailers using their single network debit cards.
Macquarie is also advising cardholders that they will not be able to withdraw cash from ATMs operated by Newcastle Permanent Building Society.
Macquarie cardholders’ access has also been curtailed to certain payments services that are not dependent on the Mastercard network.
These include access to electronic rebates from Medicare and instant payment services offered by the Eftpos-owned BeemIt platform.
Two decades ago the quest for interoperability across the payments system was championed by domestic regulators and financial institutions as a hallmark of the industry’s commitment to efficiency.
However, the RBA’s newfound tolerance for single network debit cards seems destined to unwind some of the utility benefits for end-users that flowed from linking Australia’s payment networks.
The value of interoperability to the national economy was barely addressed by the RBA in the consultation paper, except for one reference in a summary of stakeholder feedback on page 53.